THE OFFICE EQUIPMENT COMPANY

In 1992 the Office Equipment Company (OEC) had to replace its manager in San Salvador, El
Salvador, because the present managing director (a U.S. national) announced suddenly that he
would leave within one month. El Salvador is the most densely populated country in Central
America. OEC manufactured a wide variety of small office equipment (such as copying machines,
recording machines, mail scales, paper shredders) in eight different countries that was distributed
and sold worldwide.
OEC had no manufacturing facilities in El Salvador but had been selling and servicing there since
the early 1970s. OEC had first tried selling in El Salvador through independent importers but
quickly became convinced that it needed to have its own staff there to make sufficient sales.
Despite political turmoil, which over the last few years had bordered on being a full-scale civil war,
OECs operation in El Salvador (with about 100 employees) had enjoyed good and improving sales
and profitability.
OEC was in the process of constructing a factory in El Salvador that would begin operations in early
1993. This factory would import components for personal computer printers and assemble them
locally. The government would allow up to 10 percent of the output to be sold locally, provided at
least 90 percent was exported. The assembly operation would employ approximately 150 people.
El Salvador offered an abundant supply of cheap labour. Furthermore, by assembling and
exporting, OEC expected to be able to ward off any trade restrictions on the other office
equipment it imported for sale within El Salvador. The construction of this plant was being
supervised by a U.S. technical team, and a U.S. expatriate would be assigned to direct the
production. This expatriate director would report directly to the United States on all production
and quality-control matters but would report to the managing director in El Salvador for all other
matters, such as accounting, finance, and labour relations.
The option of filling the managing director position with someone from outside the firm was alien
to OECs policy. Otherwise, the options were fairly open. OEC used a combination of homecountry, host-country, and third-country nationals in top positions in foreign countries. It was not
uncommon for managers to rotate among foreign and U.S. domestic locations. In fact, it was
increasingly evident that international experience was an important factor in deciding who would
be appointed to top corporate positions. The sales and service facility in El Salvador reported
through a Latin American regional office located in Coral Gables, Florida. A committee at the
regional office quickly narrowed its choice to five candidates, but should choose the most
appropriate one for the assignment.
Tom Zimmerman Zimmerman had joined the firm 30 years before and was well versed in all the
technical and sales aspects required in the job. He had never worked abroad for OEC but had
visited several of the companys foreign facilities as part of sales teams during his career. He was
considered competent in the management of the duties he had performed during the years and
would retire in about four and a half years. Neither he nor his wife spoke Spanish; their children
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were grown and living with their own children in the United States. Zimmerman was currently in
charge of an operation about the size that the one in El Salvador would be after the factory began
operating. However, that operation was being merged with another, so his present office would
become redundant.
Brett Harrison At age 40, Harrison had spent fifteen years with OEC. He was considered highly
competent and capable of moving into upper-level management within the next few years. He had
never been based abroad but had worked for the last three years in the Latin American regional
office, and he frequently travelled to Latin America. Both he and his wife spoke Spanish
adequately. Their two children, ages fourteen and fifteen, were just beginning to study Spanish.
His wife was a professional as well, holding a responsible marketing position with a
pharmaceutical company.
Carolyn Moyer Moyer had joined OEC after getting her MBA from a prestigious university twelve
years before. At age 37 she had already moved between staff and line positions of growing
responsibility. For two years she was second in command of a product group about the size of the
expanded one in El Salvador. Her performance in that post was considered excellent. Currently she
worked as a member of a planning staff team. When she joined OEC, she had indicated her
eventual interest in international responsibilities because of her undergraduate major in
international affairs. She had expressed a recent interest in international duties because of a belief
it would help her advancement. She spoke Spanish well and was not married.
Francisco Cabrera Cabrera was currently one of the assistant managing directors in the larger
Mexican operation, which produced and sold for the Mexican market. He was a Mexican citizen
who had worked for OEC in Mexico for all his twelve years with the company. He held an MBA
from a Mexican university and was considered to be one of the likely candidates to head the
Mexican operation when the present managing director retired in seven years. He was 35, married
with four children (ages two to seven). He spoke English adequately; his wife did not work outside
the home and spoke no English.
Juan Moreno At age 27 he was the assistant of the present managing director in El Salvador, a
position he had assumed when he joined OEC after completion of his undergraduate degree in the
United States four years before. He was considered competent, especially in employee relations,
but lacking in experience. He had been successful in increasing OECs sales, an advantage being
that he was well connected with the local families who could afford to buy new office equipment
for their businesses. He was not married.

Suggestion:

If you want to also determine an estimated compensation package for each of the five candidates, here you
have the additional assumed information:

a) Present annual salaries:

Zimmerman, US$ 70,000;

Harrison, US$ 75,000;
Moyer, US$ 65,000;
Cabrera, M$ 120,000,000;
Moreno, C 150,000.

b) Exchange rates:

$1 = M$ 3,000 (Mexican peso);

$1 = C5 (El Salvador colon).

c) U.S. Department of State cost-of-living index:

Washington, D.C. = 100;

San Salvador = 93;
Mexico City = 76,

based on items covering 35% of income for a family of one, 40% for a family of two, 45% for a family of
four, and 50% for a family of five or more.

d) U.S. Department of State foreign-service premiums for El Salvador:

Hardship = 15%;
Danger = 20%.

e) Housing allowance (non-taxable):

Single = US$ 11,300;

Family = US$ 12,400.

f) Schooling allowance:

Age 6-12 = US$ 5,000;

Age 13-18 = US$ 9,000.

g) Average tax rates:

Mexico = 20%;
U.S. = 25%;
El Salvador = 30%.